Income Elasticity


Income Elasticity of Demand
: Is the degree of responsiveness of quantity demanded of a good to a small change in the income of the consumer.

Income elasticity can be represented as-
YED = proportional change in the quantity demanded/proportional change in the income

If the proportion of income spent on a good remains the same as income increases, then income elasticity for the good is equal to one.

If the proportion spent on a good increases, then the income elasticity for the good is greater than one.
If the proportion decreases as income rises, then income elasticity for the good is less than one.

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